Tax brackets 2023
The withholding tax of individuals salaries has three tax brackets. That means that those who receive payments from more than one employer may need to make arrangements to ensure that the correct tax percentage is withdrawn from their salary and therefore avoid tax debt in next year's tax assessment.
The withholding tax is as follows:
| Tax bracket | Income | Percentage |
|---|
| Tax bracket 1 | Income from 0 – 409,986 ISK | 31.45% |
| Tax bracket 2 | Income from 409,987 - 1,151,012 ISK | 37.95% |
| Tax bracket 3 | Income exceeding 1,151,012 kr. | 46.25% |
The employee's responsibility
Each and every person, who receives payments from more than one employer at the same time, is responsible for informing their employers to ensure that the correct tax percentage is withdrawn from their salary and the personal tax credit is used in a correct manner.
If the monthly salary with one employer goes above 409,986 ISK, the withholding tax at the next employer should be calculated in the next tax bracket above. If the monthly salary is more than 1,040,106 ISK per month the part that exceeds that threshold must be calculated in tax bracket three at 46.25%.
Let's look at examples
Guðrún receives her pension payments from three different pension funds, in total 550,000 ISK per month. Firstly 350,000 ISK from pension fund A, secondly 150,000 ISK from pension fund B and thirdly from pension fund C 50,000 ISK.
What does Guðrún need to do?
- She tells pension fund A to use all of her personal tax credit.
- The first tax bracket is from 0 – 409,986 ISK and Guðrún therefore needs to inform pension fund B and C to calculate her withholding tax in tax bracket two fully or partially.
- A part of her payment from pension fund B can be calculated in tax bracket one, but the rest needs to be in tax bracket two.
- All her payments from pension fund C need to be calculated in tax bracket 2.
| Employer | Amount | Tax bracket | Personal tax credit |
| Pension fund A | 350,000 kr. | Tax bracket 1 | Used at pension fund A |
| Pension fund B | 150,000 kr. | Tax bracket 1 and 2 | |
| Pension fund C | 50,000 kr. | Tax bracket 2 | |
Danuta will be working two summer jobs this summer and estimates her total salary will be approximately 600,000 ISK per month, 500,000 ISK in one place and 100,000 ISK at the other, where she only works evenings. Danuta has been working part time in the winter beside her studies and has used part of her personal tax credit for the first five months.
What does Danuta need to do?
- Summer job 1: Danuta tells them they can use her personal tax credit.
- Summer job 2: Danuta tells them her salary needs to be taxed in tax bracket two. She also tells them they can use her personal tax credit she saved for the first five months. She logs on to www.skattur.is with her electronic ID or password to get a confirmation to send to her employer.
| Employer | Amount | Tax bracket | Personal tax credit |
| Summer job 1 | 500,000 kr. | Tax bracket 1 and 2 | Allows to use personal tax credit. |
| Summer job 2 | 100,000 kr. | Tax bracket 2 | Uses the saved tax credit from the first five months of the year |
Dóra works full time as a doctor at a hospital. Her monthly salary is 1,500,000 per month. Dóra also takes shifts at a health clinic.
What does Dóra need to do?
- As her salary at the hospital exceeds the limit for tax brackets one and two a part of her withholding tax is calculated in tax bracket three. All of Dóras personal tax credit is used at the hospital.
- Dóra makes sure that the health clinic calculates her salary in tax bracket three and cannot use any of her personal tax credit.
| Employer | Amount | Tax bracket | Personal tax credit |
| Hospital | 1,500,000 kr. | Tax bracket 1, 2 and 3 | All the tax credit is used |
| Health clinic | 500,000 kr. | Tax bracket 3 | No personal tax credit |
Jón works full time year-round and is going on parental leave for three months.
What does Jón need to do?
- Jón tells Fæðingarorlofssjóður that he will use his personal tax credit and has no credit saved up from previous months.
- When Jón returns to work he needs to inform his employer of the personal tax credit used at Fæðingarorlofssjóður.
Helga and Grzegorz live abroad but are going to work temporarily in Iceland. Helga will have one employer but Grzegorz two. At Employer 1 he will have 500,000 ISK per month and at employer 2 his monthly salary will be 200,000 ISK.
What does Helga need to do?
- Even though Helga is an Icelandic citizen she is only entitled to personal tax credit during the period in which she stays in Iceland for work as she is domicile abroad. She lets her employer know when she came to Iceland.
What does Grzegorz need to do?
- Grzegorz uses his personal tax credit at employer 1
- Grzegorz is not entitled to personal tax credit from the beginning of year as he lives abroad. He lets employer 1 know when he arrived in Iceland.
- He lets employer two calculate his salary in tax bracket two.
| Employer | Amount | Tax bracket | Personal tax credit |
|---|
| Employer 1 | 500,000 kr. | Tax bracket 1 | Uses tax credit from arrival to Iceland |
| Employer 2 | 200,000 kr. | Tax bracket 2 | No personal tax credit |
Sigrun lives in Iceland and gets payments from three different pension funds, total sum of 450,000 kr. per month. One payment from pension fund A 250,000 kr. a month, another from pension fund B 50,000 kr. a month. The third payment is from a foreign pension fund 150.000 kr. a month.
What does Sigrún need to do?
- The personal tax credit is needs to be divided between the Icelandic and foreign income. Her total income from Iceland is 67% of the total. It would be best for Sigrún to use 67% of her personal tax credit at pension fund A. The 33% will be used later in the tax assessment towards the foreign income.
- The income from pension fund A exceeds the limit for tax bracket 1. They need to calculate her income in tax bracket 1 and 2.
- Pension fund B needs to calculate her income in tax bracket 2.
- The income in the foreign pension fund will be calculated with her total income for the year in tax brackets 1 and 2.
| Employer | Amount | Tax brackets | Personal tax credit |
|---|
| Pension fund A | 250,000 kr. | Tax bracket 1 and 2 | Use 67% with A |
| Pension fund B | 50,000 kr. | Tax bracket 2 | |
| Foreign pension fund | 150,000 kr. | Tax bracket 1 and 2 | Use 33% in the final tax assessment. |
